Key developments in employment law in Mexico

Can you elaborate on the role of government agencies and oversight bodies in enforcing labour laws and social security regulations in Mexico?

Agencies charged with enforcing labour and social security laws, are the Ministry of Labour (STPS), the Mexican Social Security Institute (IMSS), and the National Workers’ Housing Fund Institute (INFONAVIT), through information requests, labour inspections and specific social security audits.

As a way of ensuring compliance, these authorities can impose fines and other penalties. Furthermore, both IMSS and INFONAVIT are tax authorities that have the power to execute the imposed sanctions and carry out the process to collect unpaid contributions or fines.

What are the legal obligations and responsibilities of employers regarding workplace health and safety under Mexican law, and what laws are especially relevant for foreign investors?

In exchange for the employers/employees paying their contributions, IMSS substitutes the employer in providing medical services when occupational hazards occur and the endowment of subsidies to compensate for lost wages. When general illnesses or occupational hazards occur, IMSS will pay the ailing or sick employee a subsidy to compensate the income loss, a general illness subsidy equal to 60% of the declared salary after the third day of sick leave or an occupational hazard subsidy equal to 100% of the declared salary since the first day of sick leave.

Considering latest developments, the Mexican Official Standard regarding remote work, NOM037 STPS 2023, and the Mexican Official Standard regarding psychosocial risk factors in the workplace NOM 035 STPS 2018, are of particular importance because they establish rules that employers must comply with to provide safe and adequate working conditions for employees.

How have recent amendments in labour legislation impacted employers and employee obligations in Mexico?

• Outsourcing regulations: Amendments have introduced stricter regulations on outsourcing practices, banning staffing of personnel, and enabling only the outsourcing of specialised services (that are neither part of the beneficiary’s corporate purpose nor part of its main economic activity). Penalties for breaches might entail up to US$320,000 and might be individualised per affected employee in worst-case scenarios.
• Union democracy and transparency: Union democracy and transparency have become a priority, requiring unions to hold periodic, secret ballots for leadership elections and collective review of collective bargaining agreements (CBAs), ensuring workers have a more active role in union decisions.
• Labour justice system: The amendments consolidated a new labour justice system, including the creation of specialised labour courts. This system aims to expedite the resolution of labour disputes and ensure fair treatment for both employers and employees.
• Gender equality and non-discrimination: Regulation was strengthened to boost gender equality and non-discrimination in the workplace, aiming to promote equal opportunities and treatment for all employees, regardless of any protected trait.

How will the changes to Convention 190 of the International Labour Organisation affect foreign investment into Mexico?

It may increase costs associated with ensuring workplaces’ adherence to standards outlined in Convention 190, including policies, training programmes, and monitoring mechanisms to prevent and address violence and harassment. Adhering could also lead to improved reputation regarding social responsibility and ethical business practices, while non-compliance could expose companies to legal risks and liability, including economic penalties and reputational damage.

What are the key considerations for businesses regarding compliance with these new regulations in Mexico?

Employers must provide training and awareness programmes to employees about their rights and responsibilities under new regulations covering topics such as recognising and reporting harassment, understanding company policies, and promoting a respectful work environment.

The final step to consider is the establishment of tools and procedures for the regular monitoring and enforcement of policies necessary to ensure their effectiveness, such as updating the internal workplace rules, which are mandatory and surveilled by the labour inspection.

With the evolving nature of remote work, how has Mexican labour law adapted to address issues such as telecommuting and flexible work arrangements?

These adaptations ensure that necessary guidelines are in place for remote work situations and reflect the recognition of remote work as a significant aspect of modern employment. There’s more flexibility in work arrangements overall, allowing for part-time work, adaptive schedules, and variations to accommodate different needs. Telecommuters are entitled to the same rights and benefits as in-office workers, including working hours, compensation, safety measures, and access to training.

Employers are required to provide necessary equipment and support for remote workers, while addressing data protection and confidentiality to safeguard sensitive information. Despite flexibility, employers still have the right to monitor remote work to ensure compliance with company policies and standards, although this must be done in a way that respects employees’ privacy.

Last year, the Vacation Reform came into effect. How quickly has the Mexican business landscape adapted to these changes?

The adaptation of the Mexican business landscape to the Vacation Reform introduced last year has varied across different sectors. While some organisations have swiftly adjusted practices to comply with new regulations, others may have encountered challenges in implementation, mainly focused in the added cost considering vacation premium and the slight increase in social security contributions. Furthermore, additional vacation days represented more absences, which in turn resulted in adjustments of shifts and headcount increase.

How do Mexican labour laws address issues of outsourcing and subcontracting, and have there been any recent developments in this area?

Subcontracting reform is currently undergoing the renewal of the specialised services registration (REPSE). The FLL states that REPSE must be renewed every three years. Since a significant number of registrations were approved between September and December 2021, the second half of 2024 will put the STPS’ ability to keep up to the test. Due to labour and tax effects of an invalid REPSE, employers must be cautious of lapses in compliance. After three years of this reform, companies continue to work and analyse the different types of services they render to clients and those they receive from contractors, to determine which activities they need to declare to comply with these subcontracting provisions.

How will the Legitimisation of Collective Bargaining Agreements affect employers and investment? And what steps should be taken to ensure compliance with the law?

Under USMCA’s labour chapter, unions were required to ratify the content of all CBAs through a secret ballot, prior to 1 May 2023. If a majority wasn’t reached or the Union failed to perform the voting session, the CBA was terminated, while the employment conditions remained. After the deadline, only an estimated 30,000 CBAs were kept in force, out of a 130,000 original universe.

For those CBAs who achieved a majority, they will be subject to integral reviews every two years, requiring a secret ballot once again and, if approved, will maintain its effect for an equal amount of time, until the next voting session.

Employers must realise this process corresponds to employees and their unions with little to no intervention on the part of the employer, due to interference prohibitions.

What measures are being taken to address issues of informal labour and ensure adequate social security coverage for all workers in Mexico?

To provide independent workers with access to social security, IMSS created the Simplified Scheme for the Voluntary Incorporation of Independent Service Providers into the Mandatory Social Security Regime, which will be formally integrated into the SSL to expand voluntary insurance.

To join the Simplified Scheme independent service providers must register through the corresponding digital means and pay both the workers’ and employers’ contribution based on the total income they obtain from their activity. The insurance under this new scheme must be paid in advance on a monthly, bi-monthly, semi-annual, or annual basis.

Looking ahead for the next 18 months, what do you foresee as the key areas of focus for future reforms or amendments in Mexican labour and social security law?

1. Reduction of the standard work week from 48 to 40 hours: This bill entails concerns about the potential impact on business operations, citing increased costs, logistical challenges, headcount increase and productivity implications. Reducing the work week may necessitate adjustments to staffing levels, compensation structures, and operational practices, posing challenges for businesses, particularly small and medium-sized enterprises. However, advocates of the bill emphasise its potential to improve work-life balance, enhance employee well-being, and promote productivity by mitigating fatigue and burnout.
2. Christmas bonuses increase from 15 to 30 days salary: With concerns about the potential burden on employers, particularly small businesses, an increase yin the Christmas bonuses could strain budgets and potentially lead to workforce reductions or even business closures, however, proponents of the measure argue the additional financial support would help alleviate economic pressures and enhance employee morale and well-being.
3. Possible pension reform: The bill aims to rework the retirement pension management system to eliminate the individual retirement account system and return to the fixed benefit system that was in effect until 1997. We believe this initiative is of a more political nature, however, in a rarefied political environment major change regarding pensions could upend the way retirement fund managers operate and wreak havoc on the Mexican economy.